ETF Chart of the Day: AlphaDEX Methodology | ETF Trends

In April of this year, exchange traded fund provider First Trust unveiled an array of new products focused on the international equity space, but utilizing their already existing proprietary AlphaDEX methodology.

AlphaDEX screens equities that are members of existing S&P indexes from a fundamental and quantitative standpoint, and excludes the “bottom 25%” of the indices for inclusion in the corresponding ETF while keeping the “top 75%” of the names.

The ETFs periodically rebalance and reconstitute as well in order to take advantage of shifting fundamental pictures in the case of inclusion (or potential fundamental deterioration in the case of excluding a name or names).

The goal is to deliver excess return versus the benchmarks within the wrapper of these ETFs.

The AlphaDEX methodology has attracted attention, and assets, on the U.S. equity side now that funds such as FXD (Consumer Disc. AlphaDEX), FYX (Small Cap Core AlphaDEX), FNX (Mid Cap Core AlphaDEX), FXN (Energy AlphaDEX), and FEX (Large Cap Core AlphaDEX) have registered three-year live performance numbers.